Facts:  Mr. A, a cash-basis taxpayer, transferred the assets to a existing corporation which is wholly owned by Mr. A. In exchange for these assets, Mr. A received $50,000 cash and stock with a fair market value of $180,000. The assets transferred to the corporation are as followed: 

 

                                                Adj Basis                  Deprec. Taken potentially                 FMV

        Assets                      at transfer date                 Subject to recapture         @Date of Transfer

 

Acct receivable                            0                                             0                                      10,000

Land (1231 asset)                   50,000                                         0                                     75,000

Building (1250 asset)             50,000                                     15,000                                    70,000

Machinery(1245 asset)           50,000                                     25,000                                25,000

Inventory                                 50,000                                          0                                     70,000

Acct Payable                               -0-                                            0                                     (20,000)

 

Total                                        200,000                                   40,000                                230,000

 

Discussion Questions:

 

1. How much gain or loss must Mr. A. recognize on the transfer? What is the character (ordinary income or Capital) of any gain or loss recognized?

 

2. How much gain or loss, if any, must a corporation recognize upon the receipt of the assets of the sole-proprietorship in exchange for the corporation’s stock?

 

3. What is A’s basis in the corporate stock?       

 

4. What is the corporation’s basis in each asset it receives?

 

5. Mr. A was depreciating the building and machinery using MACRS. Can the new corporation continue to use these methods to depreciate these assets?

 

6. Must the transferee corporation use Mr. A’s taxable year, or may the corporation adopt a different taxable year? If permitted, how would the corporation adopt a different taxable year?

Answer rating: 100% (QA)

I Mr A must recognize a gain of 30 000 on the transfer II The gain is ordinary income b Is Mr A s basis in his stock the same as his basis in the asse... View the full answer